The Domestic Asset Protection Trust (DAPT) is considered an irrevocable trust created by statute and is used with the intent to keep assets shielded from creditors. The DAPT is available to allow the trust creator to transfer property or assets to the trust for safekeeping.
Settlors of the DAPT are able to put asset in the trust for themselves, spouses, children, and others, and can protect assets for the long haul. The DAPT requires an independent trustee be assigned to the trust. The trustee can distribute assets to the beneficiaries as specified by the creator of the trust. To clarify once again, the creator or “settlor” of the DAPT can also be one of the beneficiaries of this trust, also called a “self-settled trust.”
These trusts act as financial fortress to shelter assets from future creditors, but the settlors can benefit from statutes allowing trust assets to be removed from the settlor’s estate, even if the settlor receives distributions from the trust – magical. The reason that creditors are held at bay from trust assets is because the assets now belong to the trust, which is a separate unit from the original owner.
Which States Offer Domestic Irrevocable Trusts for Asset Protection?
Currently, domestic asset protection trusts are of available in the following states: West Virginia, Mississippi, Ohio, Virginia, Hawaii, New Hampshire, Tennessee, Wyoming, Missouri, South Dakota, Oklahoma, Utah, Nevada, Rhode Island, Delaware and Alaska. If you live in Delaware, you probably would want to establish a Delaware DAPT. If you live in Nevada, you probably want a Nevada DAPT. That being said, there exist some big differences in the protection offered in each state.
Of all states that currently offer irrevocable asset protection trust statutes, Nevada is currently the winner. Once a trust is created, funded with assets, and this fact is published in a newspaper somewhere in Nevada, after six months the creditor’s clock has expired for taking these assets out of the trust. See more below.
Statute of Limitations May Apply to the Irrevocable Trust – Sorry Creditor
A statute of limitations is a literal limit on how long the creditor has to bring a litigation to get assets out of a trust once the trust is established and funded. The DAPT trust statute of limitations is four years after the transfer occurs in most states, including Alaska, Colorado, Delaware, Mississippi, Missouri, Nevada (six months if the transfer is published), New Hampshire, Oklahoma, Rhode Island, Tennessee, Utah, Virginia and Wyoming. It is two years in Mississippi, Nevada, Tennessee and South Dakota, and eighteen months in the state of Ohio.
Disadvantages of Domestic Irrevocable Trusts for Asset Protection
The disadvantages of domestic asset protection trusts over offshore ones are as follows:
So, if you want to use an irrevocable trust to protect assets from lawsuits, the offshore trust has shown, time and time again, be one of the, if not the most effective tools for shielding wealth from creditors.